Closing costs are one of the biggest factors in deciding if you can afford to buy a new home. Some closing costs can be avoided, others cannot.
The lowest closing costs, making it cheapest time to buy a home in the State of California, are in February, March or April.
Why would closing costs be lower in some months? Impounds, that’s why.
Impounds is the term used for paying your paying your property taxes and homeowner’s insurance as part of your mortgage payment.
FHA financing requires that your property taxes and homeowner’s insurance payments be included and paid along with the principle and interest payment on your home loan.
Home buyers using conventional, fannie mae, financing with a minimum 10% down may avoid having to include taxes and insurance in their payment for a fee.
Your homeowner’s insurance policy is due once a year, your property taxes are due twice a year.
When you have an impound account, the total property taxes and insurance premiums are divided by 12 and spread out over each monthly mortgage payment.
Depending on when your home loan closes, and when your first payment is due, will dictate how many months of taxes and insurance need to be collected in order for the lender to pay the installment when due.
In the State of California, first half property taxes are due on November 1st, second half property taxes are due on February 1st.
As you can see from this chart, if you close your home loan in February, March or April, the lender will only require 2,3 & 4 months impounds collected respectively.
Lowest Closing Costs Sweet Spot – February, March, April
Just to be clear – the month that you buy in does not affect how much you have to pay for property taxes of homeowner’s insurance, only the number of months that need to be collected up front, at the time you close your home loan.
What does this mean to you? If you’re thinking about buying a home in 2012, the best case scenario is that you get your offer accepted sometime in January 2012.
In most cases, after a 30 day escrow, you loan will close in February and you take advantage of the lowest possible closing costs.
If you have any questions about how impounds are calculated or paid, or even if they are required in your situation, questions left below will be answered very shortly, or feel free to chat live with a loan specialist, give us a call or shoot us an email.